Rachel Reeves Delays Cash ISA Reform

Rachel Reeves, Chancellor of the Exchequer, has paused any plans to reform the UK’s much-loved tax-free Cash ISA — at least for now.

By Lauren Leyshon-Thomas

New

Created on: 18/07/2025

Updated: 21/07/2025

Reading time: 4 mins

Although the press and public expected to hear an announcement on 15th July 2025 that would cap the amount that could be deposited into Cash ISAs each tax year, the changes didn’t come.

Cash ISAs take up the lion’s share of ISA accounts in the UK, followed by Stocks and Shares ISAs (for general investing), Lifetime ISA (which can be either ‘Cash’ or ‘Stocks and Shares’ variety), and Innovative Finance ISAs (often used for alternative investments such as peer-to-peer lending) taking up a much smaller portion ^[1].

The stats on the Cash ISA’s popularity seemingly goes against the government’s intention for people to invest instead. However, the changes are not completely off the table, despite concerns from banks, building societies, and financial voices across the UK.

What changes were proposed to Cash ISAs?

It was expected for the Chancellor to announce that the Cash ISA annual allowance would be capped from:

Being able to deposit up to £20,000 per tax year
to £5,000 per tax year.

This move was said to be part of a broader effort to encourage the UK public to invest rather than save, by promoting alternatives like the Stocks and Shares ISA, with the aim of boosting long-term economic growth ^[2].

The UK is seemingly behind other countries like the US, where investing is far more common practice. We, on the other hand, have been described as a ‘nation of savers’, with over 40% of the British public having £10,000 in savings ^[3].

This change to Cash ISAs could impact how the public approaches investing money, or it could make them more averse. Certainly, the critics of the change seem to suggest the latter, with Reeves calling for an improved attitude towards investing — and for the financial industries to drop the ‘negativity’ around this ^[4].

Why has the government paused the decision?

There has been a lot of back and forth on the government’s consideration to reduce the Cash ISA allowance this past year, and even now, the conversation doesn’t appear to have ended as Rachel Reeves is not ruling out the possibility of a change in the future ^[5].

On this occasion, it appears that – after many financial institutions have voiced their concerns – the government has made the decision to pause this change.

However, this doesn’t mean the government’s interest in encouraging the public to turn to investing is unfounded. Historically, Stocks and Shares ISAs have tended to hold more money across the UK than the amount held across all Cash ISAs (since 2011/12).

In September 2024’s Annual Savings Statistics, the Stocks and Shares ISAs held 59.3% of the total money in ISAs across the UK; Cash ISAs held just 40.5% of the market value.

This means while there may be more savers using Cash ISAs, the overall value of their pots was lower than the money held in the Stocks and Shares ISAs (despite there being much fewer of those held by the public) ^[1].

Of course, there is the element of risk involved with investing, as markets can go down as well as up. This may seem too risky for some steadfast savers, but there is clearly an effort by the government to consider this the better route for boosting the economy.

Cash ISAs vs Stocks and Shares ISAs

What's next for Cash ISAs?

Remember the current rules around ISAs mean:

You can now have multiple ISAs across a variety of providers and use more than one of the different types (excluding Lifetime ISAs and Junior ISAs, as these have restrictions per person).
You can deposit up to £20,000 per tax year spread across all ISAs you’re actively using in the current tax year. Lifetime ISAs are capped at £4,000 per tax year, but you can still deposit the remaining £16,000 of your allowance in a Cash ISA, Stocks and Shares ISA, or Innovative Finance ISA.
It’s your responsibility to ensure you don’t go over the £20,000 allowance, even when that’s spread across different providers and types of ISAs.
If you are saving or investing for a child, the Junior ISA allowance of £9,000 per tax year belongs to the child, not the parent or legal guardian managing the account. That means the adult has their own separate £20,000 allowance.
All money held in ISAs is free from capital gains and income tax. No matter how high the value of the pot reaches, how much interest you build up (in a savings account like a Cash ISA) or how much profit/dividends you make (in an investment account like a Stocks and Shares ISA).

Tax treatment does depend on the individual’s circumstances though, and this could be subject to change in the future.

Planning ahead for a potential Cash ISA change

So, how would you prepare for this proposed change if it does come about in the future?

By maxing out your existing Cash ISA to the full allowance in the short term?

Many people have flocked to do this in the run-up to Reeve’s expected announcement. And it’s no wonder, when people think they’ll lose the opportunity to save up to £20,000 tax-free.

But how do short-term savings stack up against a long-term wealth-building strategy?

Well, many people consider their financial goals before weighing up what’s necessary for their individual circumstances.

Dividing your goals into two categories could help:

Things you want to spend on in the next five years could be held as savings (e.g. a wedding, a deposit on someone’s first home, or a new car);
Compared to goals you want to achieve after five to ten years (ideally longer); long-term wealth goals such as retirement planning or purchasing a second home may be better suited to investing, rather than saving money.

Should I save or invest my money?

A long-term strategy to make your money work harder

If you have your emergency fund in place (typically three to six months’ worth of essential outgoings) and have additional cash to build your future finances with, then a longer-term strategy like investing may be the better option for you to hopefully beat inflation and grow your wealth.

And inflation does play a key role in long-term money management, as keeping your money in a Cash ISA may not offer you competitive enough returns over the long run.

When the average interest rate for savings is between 3-4%, your money may lose its value over time as inflation increases. This is a fundamental reason why people turn to investing.

Riding out the markets

Another reason to consider investing as a long-term strategy is that it’s quite normal for the stock market to rise and fall over time.

These highs and lows are a normal part of the investing industry. But the risk involved is the reason why the public is encouraged to invest over a longer period of time (usually a minimum of 5-10 years) in hopes that the value of their investments will ride out the market lows. And similarly, to only invest with money they have outside of their essential outgoings — not with money they may need to withdraw early when the markets may be on a downturn.

However, despite the risk, the long-term objective is to try to invest in order to grow your money. And, in doing so with something like a Stocks and Shares ISA, you could benefit from the tax-free benefits it brings, too.

Find out more about Wealthify’s Stocks and Shares ISA

Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.